Fearful Stocks for Greedy Investors

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"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
 -- Warren Buffett

Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.

In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy," snapping up bargains from these fearful sellers. (Assuming they really are bargains.) In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders:

	Recent Price	CAPS Rating (out of 5):
Eclipsys (Nasdaq: ECLP)	$8.59	*****
McMoRan Exploration	$6.44	****
Century Aluminum	$3.70	***
Rambus  (Nasdaq: RMBS)	$8.55	***
MGM Mirage (NYSE: MGM)	$8.13	**

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance.

Wall Street's Wizards of finance are unloading these stocks as fast as they can, yet down here on Main Street, we mere mortals are taking a more nuanced view of the firms. Only one of these companies gets anything less than a middling three-star rating, and two of them actually receive above-average marks.

Of the two, CAPS investors seem to think Eclipsys is the clear leader. Let's see if we can figure out why, as we examine ...

The bull case for Eclipsys Corp.

• CAPS member aldobrandi introduced us to the company way back in January 2007 as a "Provider of cmprehensive productivity enhancing software to the health care industry. The company is a fast grower in an expanding and yet lowly penetrated market." Health care? Software? Why does that ring a bell?
• andcheese jogs our memory with this note: "The RAND Corporation ... estimates the industry could save $162 billion per year through the simple IT upgrades. Switching records from a paper-based system to an electronic one and using bar coding and tracking software will save hospitals time and money, which will also lead to increased efficiency. ... Obama's $50 billion plan is a significant boost ... to drive revenue and earnings to new heights for the sector."
• Of course, as biovestor pointed out last summer: "healthcare info tech [is] an industry dominated by larger players such as [GE (NYSE: GE) Healthcare, Cerner (Nasdaq: CERN), and Philips]." That said, "more consolidation [is] likely in the future." If that leads to acquisitions of smaller players at premium prices, Eclipsys shareholders could make out very well indeed. 

Of course, that still leaves us with the questions: Why would a larger player want to buy Eclipsys in the first place -- and more importantly, why should you?

Maybe because it appears cheap as all get-out. Eclipsys stock trades for a mere 4 times trailing earnings, and perhaps 5 times full-year 2008 earnings (I say "perhaps" because the company hasn't released its final numbers yet). Weighed against analyst expectations of long-term profits growth in excess of 22% per year, that looks awfully cheap.

Personally, I don't entirely trust that valuation; free cash flow is only a fraction of what Eclipsys reports as GAAP net earnings, you see, and that usually sets off alarm bells for me. But I can't help noticing that in addition to the seemingly low price-to-earnings ratio, Eclipsys also boasts a price-to-sales ratio of less than 1.0 -- which is really, really low for a software shop. Citing a high-profile example, Oracle (Nasdaq: ORCL) sells for about 4 times that valuation. If you prefer to look at a software firm closer to Eclipsys' orbit, Motley Fool Stock Advisor recommendation Quality Systems (Nasdaq: QSII) -- which, like Eclipsys, specializes in health-care software -- commands a P/S ratio in excess of 5.0.

Time to chime in
Any way I look at Eclipsys, I keep coming up with the same answer: The stock's holleringly cheap. But just because I think so doesn't mean you need to agree. If you've got a different take on Eclipsys -- or any other stock making today's list, for that matter -- click on over to Motley Fool CAPS and tell us what you think. It’s free and fun.